Europe Stocks Drop as Lufthansa, Vallourec Cut Forecasts

By Namitha Jagadeesh -
Jun 11, 2014

European stocks fell from a six-year
high as companies including Deutsche Lufthansa AG and Vallourec
SA cut their profit forecasts.

Lufthansa slid the most since September 2001 after lowering
operating-profit estimates for this year and next. Vallourec SA
plunged the most in two years after predicting earnings will
drop 10 percent in 2014. Airbus NV lost 3.1 percent after saying
Emirates canceled its order for A350 wide-bodied aircraft.
Inditex SA rose 1.1 percent after posting first-quarter profit
that beat analyst estimates, and saying it plans a share split.

The Stoxx Europe 600 Index fell 0.6 percent to 347.74 at
the close of trading, its biggest loss since May 15. The equity
benchmark rose for a fifth day yesterday amid optimism that
measures announced by the European Central Bank last week to
increase inflation will send equities higher.

“This could potentially be the start of a very difficult
second quarter for earnings,” said Andrea Williams, who helps
manage about 50 billion pounds ($84 billion) as head of European
equities at Royal London Asset Management. “There’s a big gap
between where markets and earnings trends are going. The scale
of Lufthansa’s cuts suggests that only a part of it is about the
Venezuelan bolivar, and is probably a wider economic comment.”

Analysts have cut their earnings estimates for Stoxx 600
companies to a gain of 9.1 percent this year, compared with an
increase of about 14 percent predicted at the beginning of the
year, data compiled by Bloomberg show.

Ex-Dividend Trading

Nine Stoxx 600 companies including Vodafone Group Plc and
Cie. de Saint-Gobain trade without the right to dividends today,
shaving 0.2 point off the index. The volume of shares traded in
Stoxx 600 companies was 3.2 percent higher than the 30-day
average, data compiled by Bloomberg show.

The World Bank forecast that the global economy will expand
2.8 percent this year, down from a January projection of 3.2
percent. The Washington-based lender predicted slower growth for
the U.S., China, Russia, India and Brazil. It left estimates for
world growth in 2015 unchanged at 3.4 percent.

In the U.K., a report from the Office for National
Statistics showed the unemployment rate fell to the lowest in
more than five years. The jobless rate as measured by
International Labour Organization methods dropped to 6.6 percent
in the three months to April from 6.8 percent in the first
quarter. The median estimate in a survey was 6.7 percent.

Airlines Decline

Lufthansa tumbled 14 percent to 17.09 euros after
predicting operating profit of about 1 billion euros ($1.35
billion) this year and 2 billion euros next year. It had earlier
forecast profit of as much as 1.5 billion euros in 2014 and 2.65
billion euros for 2015. The airline cited the effect of strikes
and the devaluation of the Venezuelan bolivar for the reduction.

A gauge of travel-and-leisure stocks posted the second-worst performance of 19 industry groups in the Stoxx 600. IAG
SA, the owner of British Airways, dropped 3.1 percent to 400
pence and Air France-KLM Group fell 7 percent to 11.05 euros.

Vallourec tumbled 11 percent to 35 euros. The French
producer of steel pipes for the oil-and-gas industry said 2014
earnings before interest, taxes, depreciation and amortization
will fall because of fewer orders from Petroleo Brasileiro SA,
which is eliminating most of its tube inventories.

Airbus Retreats

Airbus lost 3.1 percent to 52.21 euros after saying that
Emirates has canceled its planned purchase of 50 A350-900 planes
and 20 of the larger -1000 variant. Emirates, the biggest buyer
of the A380 aircraft, made the decision after reviewing its
fleet requirement, Airbus said. The Dubai-based airline placed
the order in 2007 and the first delivery was scheduled for 2019.

Rolls-Royce Holdings Plc slipped 5.5 percent to 1,017
pence. The maker of civil-aviation engines said Emirates’
cancellation reduces its order book by about 2.6 billion pounds.

Nutreco NV (NUO) dropped 2.4 percent to 31.30 euros after saying
it has halted a process to sell its Iberian compound-feed and
meat assets. The company said it didn’t get an offer that
matched its expectations, following discussions with several
potential buyers. The Dutch maker of animal-nutrition products
and fish feed undertook a four-month sale process to find a
buyer for the cash-generative business.

Bouygues SA (EN) retreated 6.3 percent to 32.02 euros. The
family-run construction and media conglomerate will eliminate 17
percent of the jobs at its telecommunications unit after merger
talks with Orange SA (ORA) and separately with Iliad SA (ILD) failed.
Bouygues Telecom, France’s third-largest mobile-phone company,
will cut 1,516 positions. Discussions with Iliad and Orange in
the past two months were inconclusive, said Olivier Roussat, the
unit’s chief executive officer.

Genel Energy

Genel Energy Plc (GENL), which owns stakes in oil and natural gas
assets in Iraq’s Kurdistan region, lost 5.7 percent to 968.5
pence as militants from a breakaway al-Qaeda group captured the
city of Mosul. The state-run North Oil Co. said yesterday that
fighting in the northern Iraqi city forced a halt in repairs to
the main pipeline from Kirkuk to the Mediterranean port of
Ceyhan, Turkey. Gulf Keystone Petroleum Ltd., an oil producer in
Iraqi Kurdistan, tumbled 9.9 percent to 81.5 pence.

Inditex advanced 1.1 percent to 111.50 euros. The world’s
largest apparel retailer posted first-quarter net income of 406
million euros, exceeding the average analyst forecast of 391.2
million euros. The owner of Massimo Dutti also proposed a five-for-one stock split for shareholders.